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1099 vs W2 Employee
When your practice reaches the point that you need to start hiring, you want to make sure you fully understand the differences between 1099 independent contractors and W-2 employees. If you are hiring people to work for you full-time, then you will likely have to make them an employee. Also, if you control how many hours they work, give them benefits, and pay them a salary, that also makes them an employee. I encourage my practitioners to be independent contractors as that puts them in control of their income and taxes. As an employee, they cannot write off any expenses, but as a 1099 they can take advantage of deductions and reduce their taxable income. Doctors get killed in the high tax bracket as a W-2. That does make some people nervous though, so I do offer the option to be a W-2 but their pay will be a little less as I have to cover payroll taxes on top of their salary. I pay 60% of membership revenue for my independent contractors and 50% for employees.
Know that you can get in trouble with the IRS if they decide that your independent contractor is actually an employee. Say they work for you for 5 years, then the IRS makes that determination, you will have to go back and pay 5 years' worth of payroll taxes! In order to avoid that, you want to minimize any benefits you give them and not control the hours they work, but just that they are fulfilling their duties. I do not require my PA who is an independent contractor to be at the office for a certain amount of hours as long as patients are able to get in to see him quickly. Also, I encourage him to have side gigs as that helps solidify his 1099 status in the IRS’s eyes. Finally, it is key for them to set up their own LLC that you pay instead of them personally. It is definitely a risk to hire practitioners as independent contractors but I think it benefits the practitioner and employer much more than a W-2 employee.
You also need to get a W-9 filled out on anyone that you have paid $600 or more for a service. This could include cleaning companies, lawyers, pest control, painters, plumbers, etc. You can put them in your payroll software like Gusto to then give them their tax documents in January of the next year or your CPA can help process it for you.
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1099 vs W2 Employee
When your practice reaches the point that you need to start hiring, you want to make sure you fully understand the differences between 1099 independent contractors and W-2 employees. If you are hiring people to work for you full-time, then you will likely have to make them an employee. Also, if you control how many hours they work, give them benefits, and pay them a salary, that also makes them an employee. I encourage my practitioners to be independent contractors as that puts them in control of their income and taxes. As an employee, they cannot write off any expenses, but as a 1099 they can take advantage of deductions and reduce their taxable income. Doctors get killed in the high tax bracket as a W-2. That does make some people nervous though, so I do offer the option to be a W-2 but their pay will be a little less as I have to cover payroll taxes on top of their salary. I pay 60% of membership revenue for my independent contractors and 50% for employees.
Know that you can get in trouble with the IRS if they decide that your independent contractor is actually an employee. Say they work for you for 5 years, then the IRS makes that determination, you will have to go back and pay 5 years' worth of payroll taxes! In order to avoid that, you want to minimize any benefits you give them and not control the hours they work, but just that they are fulfilling their duties. I do not require my PA who is an independent contractor to be at the office for a certain amount of hours as long as patients are able to get in to see him quickly. Also, I encourage him to have side gigs as that helps solidify his 1099 status in the IRS’s eyes. Finally, it is key for them to set up their own LLC that you pay instead of them personally. It is definitely a risk to hire practitioners as independent contractors but I think it benefits the practitioner and employer much more than a W-2 employee.
You also need to get a W-9 filled out on anyone that you have paid $600 or more for a service. This could include cleaning companies, lawyers, pest control, painters, plumbers, etc. You can put them in your payroll software like Gusto to then give them their tax documents in January of the next year or your CPA can help process it for you.